2015-10-07

PBOC Q3 Business Conditions Survey: Confidence Plunges

Not only is the lack of change surprising but the sheer enormity of differences in revenue and other financial metrics are enormous. Since the beginning of 2010, an average 86 per cent of operating revenue in listed firms flowed to old industry companies. To put the size differences of the industries we are talking about in perspective, liability growth between the second quarters of 2014 and 2015 for old industries was equal to almost the entire amount of outstanding liabilities for all of the new industries in China. Not only is business growth not rebalancing but the allocation of capital is not being channeled to growth sectors.

Some have noted quite accurately that certain sub-sectors are growing rapidly. Goldman Sachs has pointed out that certain high technology medical device manufacturing and leisure services are growing rapidly. Nomura has pointed out that movie box office receipts and insurance will grow rapidly. While there are sub-sectors like these that are growing rapidly, they are insignificant against the backdrop of the overall Chinese economy. For instance, even the Leisure sub-sector is less than 2 per cent of the overall Hotel, Restaurant, and Leisure sector which is facing essentially flat revenue growth. The rapidly growing sectors simply are not large enough to rebalance the Chinese economy.